BETHESDA, MD — CoStar Group, Inc. (NASDAQ: CSGP) today announced that its second quarter 2006 earnings per diluted share doubled compared to the same quarter a year ago. Revenues increased 18.5% from $32.9 million in the second quarter of 2005 to $38.9 million in the second quarter of 2006.
"Our established markets continue to grow more profitable, and our 21 expansion markets, which previously required investment, are now profitable in aggregate," explained CoStar President & CEO Andrew C. Florance.
"The results from the established and expansion markets for second quarter 2006 over second quarter 2005 outweigh the company's significant investment in launching CoStar's retail real estate service, resulting in second quarter performance that exceeded expectations."
"We believe our two-year investment in expanding coverage to 21 additional U.S. markets is yielding excellent results as these markets, in aggregate, move to positive cash flow just four months after the last market opened," Florance added.
"We also experienced highly favorable industry response to the launch of a retail component of our flagship product, CoStar Property Professional, that was unveiled in May at the International Council of Shopping Centers' (ICSC) convention in Las Vegas," Florance added. "Over the course of three days, more than 6,000 retailers, owners, developers, brokers and other commercial real estate professionals visited our booth to learn how our breakthrough technology reduces the time, expense and risk of retail real estate decisions. Since the launch in late May 2006, we have signed 71 retail related contracts with an annualized value of more than $1.2 million. These contracts are with retail-oriented brokerage firms, owners and leading retailers such as Sbarro, Inc.; Pathmark; Spencer Gifts LLC; Mattress Discounters; Floors Today and others. We expect to see continued strong demand for our retail offering in the future."
In June 2006, CoStar began charging for its CoStar Commercial MLS™ product – a high-value, low-cost online database that contains the nation's largest collection of researched commercial for-sale property listings and high-resolution images. In just over a month, more than 1,000 free-trial subscribers have converted to paying customers – brokerages, sole practitioners and residential agents who buy and sell the occasional commercial property. It is the company's first subscription product that relies on a pure Internet customer acquisition model.
"Our subscribers want comprehensive, verified and timely information along with powerful tools to help them make more money faster," Florance explained. "Unlike Internet bulletin boards that post duplicate listings, mis-classified properties, or buildings that have already been sold, CoStar Commercial MLS contains verified and actionable listings – a service that is clearly resonating with users."
Revenues for the second quarter of 2006 increased 4.5% over the first quarter of 2006. The majority of that growth was driven by CoStar's core subscription-based revenues and consistently high renewal rates, which were approximately 93% for the second quarter of 2006. CoStar's rate of renewal for subscription services has been above 90% for the past nine consecutive quarters. The company has reported sequential revenue increases in every quarter since its IPO in 1998.
CoStar's net income increased to $2.3 million, or $0.12 per share, for the second quarter of 2006 compared to net income of $1.1 million, or $0.06 per share, for the second quarter of 2005. For the quarter ended June 30, 2006, EBITDA was $5.3 million compared to EBITDA of $4.2 million in the second quarter of 2005.
The company estimates that second quarter 2006 operating results include investments in excess of $5.0 million in its new retail real estate information service. The second quarter 2006 results also include non-cash charges for equity compensation of $1.0 million, including stock option compensation expense of approximately $700,000, resulting from CoStar's adoption on January 1, 2006 of Statement of Financial Accounting Standards No. 123 (Revised 2004) "Share-based Payment" (SFAS 123R). The charges are primarily included in selling and marketing expense as well as general and administrative expense and, by comparison, were $85,000 for the second quarter of 2005. The company expects 2006 non-cash equity compensation expense to be between $4.0 million and $5.0 million.
As of June 30, 2006, the company had $150.2 million in cash, cash equivalents and short-term investments. The company has no long-term debt.
The company believes that there is increasing demand for detailed, thoroughly researched commercial property information in many areas of the United States that CoStar does not yet cover. With the positive response to the company's retail product rollout at the ICSC tradeshow, CoStar believes that there is significant enough demand to warrant acceleration of its planned four-year effort to cover a majority of U.S. retail properties. The company believes that it can meet this demand as well as earn a compelling return on its investment. Accordingly, CoStar intends to expand its fleet of 52 field research vehicles by acquiring and equipping an additional 100 vehicles. Rather than the Dodge Sprinters the company has been using, CoStar intends to add less costly and more environmentally friendly hybrid cars to its fleet. To staff these vehicles and to support its expanded research efforts, CoStar also plans to add an additional 250 researchers during the third quarter of 2006. During that same quarter, the company expects to begin actively researching approximately 100 new small or tertiary metropolitan statistical areas (MSAs) across the United States.
"Just as we set high standards for the quality of information in our commercial property database, we set equally high standards for ourselves as a company," Florance added. "Equipping our field researchers with low-emission, fuel-efficient cars means less pollution in every community where we drive to collect and verify building information. CoStar is committed to making our world more environmentally sound, and this is just one of many steps we're taking to put our values into practice."
As the industry's largest commercial real estate research organization, CoStar gathers and verifies for-sale and for-lease listings across all property types – office, industrial, retail, land, mixed-use, hospitality and multifamily – throughout the United States and United Kingdom. The company's current team of over 800 researchers, which includes full-time employees and independent contractors, personally contacts property brokers, owners, developers, lenders, tenants and appraisers to ensure the completeness and accuracy of CoStar's listings – a level of due diligence that no other commercial real estate information service provides.
"For 2006, we expect organic revenue growth of approximately 18.0% to 20.0%," said CoStar Group Chief Financial Officer Frank A. Carchedi. "For the third quarter of 2006, we expect a sequential revenue increase over the second quarter of 2006 of approximately 3.5% to 5.0%."
"We now expect 2006 fully diluted net income per share to be approximately $0.50 to $0.60," he added. "For the third quarter of 2006, we expect fully diluted net income per share of approximately $0.16 to $0.20."
Management will conduct a conference call to discuss earnings results for the second quarter ended June 30, 2006 and the financial outlook for the third quarter of 2006 at 11:00 a.m. EDT on Thursday, July 27, 2006.
The audio portion of the conference call will be broadcast live over the Internet at www.costar.com/corporate/investor/. If you would like to join by telephone, please call (800) 329-4405 within the United States or (706) 634-0964 outside the United States. A telephonic replay of the conference call will be available two hours after the live call concludes through midnight on August 3, 2006. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 2764427. The replay will also be available over the Internet at www.costar.com/corporate/investor/ for a period of time following the call.
About CoStar Group, Inc.
CoStar Group, Inc. (NASDAQ: CSGP) is the number one provider of information services to commercial real estate professionals in the United States and the United Kingdom. CoStar's suite of services offers customers access via the Internet to the most comprehensive database of commercial real estate information on 66 U.S. markets, London and the United Kingdom. Headquartered in Bethesda, MD, the Company has approximately 1,000 employees throughout the United States and the United Kingdom, including the largest professional research organization in the industry.